Retailer Harvey Norman could be facing another fiery annual general meeting after failing to significantly modify its executive pay despite ongoing shareholder concerns.
In the company’s annual report released on Wednesday, Harvey Norman revealed its remuneration package for the 2020 financial year that featured minimal changes from the year prior.
This was despite its 2019 pay deal receiving significant backlash from investors, with 47 per cent voting against the proposal in a ‘second strike’, triggering a board spill vote.
In response, Harvey Norman’s remuneration committee, led by non-executive director Ken Gunderson-Briggs, commissioned an independent review of its remuneration package for the 2020 financial year.
Mr Gunderson-Briggs said he was “hopeful” the new report would pass the scrutiny of investors and proxy firms and defended the slight modifications, saying the company had adhered to all the recommendations made by the independent auditor.
“This is not a case of us besmirching people and saying ‘bugger you, we’ve got this right’,” he said. “We’ve done a lot of work on it both internally and with the external reviewer.”
Shareholders last year expressed concern over the high fixed remuneration of executives, along with the financial metrics used by the company when granting short-term bonuses.
The independent review found Harvey Norman was required to pay higher executive salaries than the median due to the size of its business compared to other retailers. It also recommended the company expand and refine the group of companies used as comparatives when assessing the board’s remuneration.
As a result, the committee deduced that the executives’ level of base pay and bonuses for 2019 was reasonable and that the long-term incentives were actually “underdone” and should be extended.
The company therefore did not significantly modify its remuneration structure, however, it did placate some investors by switching its short-term incentive metric away from its controversially-determined adjusted earnings per share to a new figure of adjusted profit after tax.
Investors have also voted against the remuneration report in the past due to concerns on Harvey Norman’s governance more broadly, including the stark lack of independent directors on its 10-person board, which includes only one female director.
Harvey Norman’s profit for the year shot up 20 per cent thanks to heightened spending through the pandemic, which in turn boosted the bonuses allocated to investors. Total short-term bonuses awarded for the year came in at $3.4 million.
The retailer also continued to award half of its short-term bonuses based on a crop of ‘non-financial’ conditions which governance experts last year likened to “being part of an executive’s day job”. Nearly all non-financial hurdles (92 per cent) were cleared by executives.
This resulted in chief executive Katie Page pocketing a total remuneration package of $3.3 million for the year, a $300,000 increase on the prior year.
Gerry Harvey, the executive chairman and co-founder of the retailer, received $858,000 in remuneration for the 2020 financial year alongside $100 million in dividends from his 32 per cent shareholding in the listed retailer.
The company’s executives forgave 20 per cent of their salaries for three months over April to June due to the COVID-19 pandemic.
Stephen Mayne, a prominent shareholder activist and fierce critic of the Harvey Norman board, said the minimal changes were “very disappointing”, especially in regards to the “excessive” base salary for the company’s executives.
“The vast majority of ASX200 companies respond positively to a strike but Harvey Norman has taken a stubborn approach for many years, largely reflecting the intransigence of executive chair and major shareholder Gerry Harvey on the question of showing respect for the views of minority shareholders and governance experts,” he said.
Mr Harvey and his associates together control nearly half of Harvey Norman’s shares, meaning any opposition to the company’s remuneration is unlikely to drive real change. Last year’s spill motion garnered support from just 11 per cent of shareholders.
Source: Thanks smh.com